WEATHERING THE STORM: HOW TO MANAGE YOUR SUPPLY CHAIN IN A VOLATILE WORLD
Published on April 27, 2017, by
David Houser: Senior Vice President, International Sales HighJump
As the frequency of natural disasters creeps upward, companies must plan ahead to shield their supply chain operations from worst-case scenarios.
Extreme weather conditions. Geopolitical chaos. Economic unrest. Cybercrime. No, this isn’t the plot of an action-packed blockbuster; these are the factors at play in today’s volatile world that supply chain operators must be prepared to face head-on. As supply chains have grown longer and more complex, disrupting forces have become a new normal. As such, Forbes reports that 80% of companies across the globe “see better protection of supply chains as a priority.”
Given some recent large-scale supply chain disruptions, it’s no wonder that companies have begun to prioritize precautionary measures. Take Toyota, a company devastated by Japan’s earthquake in 2011. The company’s attempts to “earthquake-proof” their supply chain following the devastating natural disaster offer a valuable lesson worth heeding: companies must be agile in the face of catastrophe and work towards creating a more dynamic supply chain moving forward.
Shaking Up Toyota’s Supply Chain
The magnitude nine earthquake that hit the coast of Japan in March of 2011 also hit Toyota’s supply chain — hard. Following the quake, four of Toyota’s production plants were shut down and 660 suppliers were impaired. Production recommenced on a car-by-car, day-by-day basis in the months following the quake, and only on a limited number of models. Since so much of Toyota’s supply chain crumpled under the seismic activity, 75% of the company’s quarterly profits were washed away.
What made Toyota so susceptible to the earthquake’s ravages? The company is known for its lean supply chain that relies on small, frequent deliveries from suppliers to avoid building up excess inventory on hand. Therefore, in the face of unexpected disruption, the typically efficient supply chain lacked the infrastructure to continue with business as usual.
Cognizant of their hyper-efficient system’s drawbacks, Toyota has made a concerted effort to build an “earthquake-proof” supply chain, balancing their famous efficiency with more comprehensive risk management following the quake. Measures included identifying which suppliers and production sites were most at risk; standardizing vehicle parts so they could be used for multiple models; increasing dual sourcing for the most important components.
This new system was put to the test in April of this year after two high magnitude quakes hit Kumamoto. The bad news? Toyota still had to shut down 26 assembly lines due to production halts by supplier plants. But, according to experts, recovery this time was a much faster process. Their supply chain might not be totally risk-proof, but it’s at least risk-resistant.
In the Case of Emergency
Unfortunately, as Mark Pearson, Managing Director of Accenture, points out, these emergency situations are only becoming more common. Whereas Toyota and other Japanese companies spent the last five years preparing for 2016’s earthquakes, your company may not yet have similar safeguards in place. In the face of this type of crisis, how can your business protect itself from substantial losses?
First and foremost, the key is to stay one step ahead of risk at all times and be aware of disaster-prone areas. Pearson recommends reshaping the supply chain for an era of volatility. To bounce back from a disaster, companies should be able to synthesize external and internal data and translate that data into action; diversify suppliers and markets; and enter into partnerships with other supply chains to share key stocks in case of emergency. Another cornerstone of a resilient supply chain? Smart IT that can analyse and model scenarios, as well as enact pre-programmed responses.
Of course, some snags in the supply chain will arise, no matter what precautionary measures you take. In the case of an emergency, ensure transparency along all steps of the supply chain. Access to real-time shipping updates will allow retailers, suppliers, and carriers to reroute or re-position inventory depending on fluctuations in the area’s stability. Other measures you can take include establishing a point person to run a crisis command centre, creating a business continuity plan, and monitoring expenditures.
By instilling a culture of risk management and improved emergency systems, your company will end up well ahead of the curve. According to Accenture, companies that switch up their supply chain management practices are 75% more profitable than competing organizations.
Whether or not a dynamic supply chain is in your company’s 10-year plan, the fact remains that we live in an unpredictable world. But with the right preparation, when disaster strikes, your supply chain operation should be more than ready to weather the storm.
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